From a talk Peter Orszag recently gave to the Association of American Universities:
The data comes from a paper by Claudia Goldin and Lawrence Katz. In the study, they examine what they call "the race between education and technology." From 1915 to 1980, they say, educational attainment outpaced technological change. As such, lower income groups made quick economic gains and the gap between the rich and the poor narrowed. "But a big reversal occurred around 1980." Educational attainment dropped. The pace of technological change quickened. The demand for more skilled workers, in other words, increased just as the supply of skilled workers was shrinking. As such, the relatively few skilled workers on the market commanded hefty wage premiums, and inequality widened.
There's some significance, then, to Orszag's use of the data from this paper (in fact, a couple of his graphs use data from Goldin and Katz's series). Goldin and Katz conclude "that when it comes to changes in the wage structure and returns to skill, supply changes are critical, and education changes are by far the most important on the supply side." It's probably fair to say that if Orszag is showing their data, he's in some sympathy with their conclusions. And in their telling, boosting educational attainment is a way of addressing widening income inequality. That may be how the administration is thinking about it, too.
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